First it's five day chart and a look at how one series of it's Calls that expired that day (Friday) traded. They went up from their lows of the day by about nine-fold!
Now let's look at it's one day chart that caused that kind of action to happen. It was a gamble because it involved an exercise of riding a Call option that was about to expire that same day.
Notice it got off to a rough start before it began to take off on the upside. Our last blog on Boeing shared the same experience. What's going to happen this week? We have Trump bombing Venezuela. Given the expected volatilty to follow might this be a good opportunity to revisit last weeks blog (Dec 30th) on concept of doing an option straddle? Buy one Put and one Call on the same stock at the same time with the same expiry date and see what happens. In using this stategy (which once again in most instantaneous is a very stupid thing to do) the hope is that the stock will have a decent move in either direction in avery short period of time.
I am in more of the camp that the best strategy is just to try and play the stock in one direction.
Now Monday morning. Exxon jumped.
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Now let's do the math. On the purchase side the cost to buy the two options was $159.00 plus $85.00 equals $244.00. If you were to close out both sides of the position now their values would be $348.00 plus $48.00 equals $400.00 less the costs doing four trading tickets. That's a profit of somewhere in the $115.00 range. That's U.S. money. Not bad for an initial investment of $244.00. But wait, how does this differ from simply buying one Call option last friday and then selling it out into this morning's rally? That would have created a cost of $244.00 on the buy in and then $400.00 on the sell side, less this time, the expense of only two commissions to then end up with a profit of only slightly more, somewhere in the $135.00 range. It will be interesting to find out how numbers will change going forward. Now it's end of Monday numbers. These were five day options at the start of the day and going into Tuesday's session they will be four day to expiring options. Do you take your profits and run? I would. This new U.S.- Venezuela story could very quickly spook the markets.
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Now a recap. The Calls and Puts cost $244.00 (U.S.)to purchase (plus commissions) and could be sold for $410.00 (U.S.)leavng a profit of $166.00 or $126.00 U.S. after commissions. That's not a bad one day trade. Yet consider this. The profits from just buying and selling a 114 Call option. $159.00 on the buy and $383.00 on the sell, less $20.00 in commissions leaves a profit of $204.00 (U.S.). I don't like the concept of doing "spreads". I will check back in later in the week to comment on what ended up happening.
A January 6th update. Look at this chart.
Logic prevails.
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